July 27, 2014

They Are Wrong, Just Like They Were Wrong Last Time

It’s Friday desk clearing time for this blogger. “Alec Diacou bought two large houses in Riverdale in 2004 with the plan to restore and sell them. He’d already rehabbed a number of properties, which he ended up selling with relative ease. But when he finished rehabbing the second in 2009, the recession was in full swing, emboldening some buyers to skip the niceties of negotiation. The real estate market bounced back with a vengeance, and now in Manhattan and parts of Brooklyn and Queens, bidding wars and sky-high prices are the norm. But not so in the high-end niche in Riverdale. Mr. Diacou’s aim now is to break even and move on.”

“Perhaps just a victim of timing and the ruthlessness of the market, he never anticipated all the difficulty he’s been up against. Riverdale’s slump doesn’t make any sense to him. His wife, Suzi Arensberg, is also perplexed. ‘Brooklyn and Manhattan are sold out,’ she said. ‘Why don’t they come 15 minutes up the highway?’”

“‘”Foreclosure, foreclosure, foreclosure.’ Real estate broker John Susani drives down a Paterson, N.J., street where every third house seems to be abandoned or boarded up. During the boom years, money flooded into Paterson. In some cases, he says, home prices jumped as much as 50 percent. The homes on these streets aren’t worth nearly that much anymore. ‘The banking industry allowed everyone to be a homeowner; they gave mortgages to people [just because they were] breathing,’ Susani says.”

“According to RealtyTrac data, 33 percent of the nearly 400 homes in foreclosure in Worcester County were identified as abandoned. In the city of Worcester, though, the number of vacant homes in foreclosure is estimated to be much higher by city officials who keep tabs on them. ‘I say they’re cursed,’ said Lee R. Hall, principal sanitary inspector for the city. ‘Two years is not really very long for these properties’ to sit vacant waiting to be foreclosed.”

“Realtor Nilton Lisboa is one of the people charged checking on these zombie properties to ensure they are maintained properly. ‘I want to get these properties sold,’ he said. ‘We know there’s no one living there. We know it’s an eyesore, but there’s nothing we can do about it, because we have to wait for the banks.’”

“Foreclosures in metro Toledo surged in June, according to RealtyTrac, an increase of nearly 100 percent compared with the same month a year ago. Re/Max Masters broker Jon Modene, who specializes in foreclosed properties, said what could be fueling the surge is a huge drop-off in short sales. Prior to Jan. 1, short sales were not subject to sales tax, but now they are. ‘There’s now a disincentive to do a short sale. You do a short sale, you get a tax bill,’ Mr. Modene said. ‘So nobody is doing short sales anymore. People are staying in the house and … giving the banks back the house. The banks are sitting on inventory. So they have the ability to push the [foreclosure] numbers forwards or backwards.’”

“Former Federal Reserve Chairman Alan Greenspan spoke to MarketWatch about the current stance of Fed policy, the economy and what to do about asset bubbles. MarketWatch: ‘Some economists argue that the economy has just been bubble after bubble and that we’re doomed to repeat this cycle.’”

“Greenspan: ‘Well, I agree with that. I have come to the conclusion that bubbles, as I noted, are a function of human nature. We don’t have enough observations, but my tentative hypothesis to what we’re dealing with is that both a necessary and sufficient condition for the emergence of a bubble is a protracted period of stable economic activity at low inflation. So it is a very difficult policy problem. I do believe that central banks that believe they can quell bubbles are living in a state of unrealism.’”

“Singapore’s central bank said Thursday that recent property-sector cooling steps were working but it was too early to ease those measures as real-estate prices remained at elevated levels. Property prices have risen 60% over the last four years and fell just 3.3% over the previous three quarters, said Monetary Authority Of Singapore Managing Director Ravi Menon. Singapore, like China, is worried about potential property bubbles that could destabilize the financial industry and push up inflation. China has taken some steps including credit curbs and restrictions on multiple home purchases.”

“‘Risk factors have not changed,’ Menon said. ‘It is premature to ease property measures now.’ Global interest rates are still at historical lows and debt levels among highly leveraged households remain high, the MAS said.”

“London property stagnated in July, the first month with no growth since December 2012, as demand plunged and properties took longer to sell, Hometrack Ltd. said. The data add to evidence that measures to cool the market are working after groups including the Organization for Economic Cooperation and Development warned that a bubble could be forming. The Bank of England introduced measures in June to limit riskier mortgages and new rules came into force in April requiring tougher mortgage-affordability tests.”

“‘It is clear that there are bigger forces at work with a pronounced loss of momentum in the London housing market,’ said Richard Donnell, director of research at Hometrack. The slowdown is due ‘in part due to warnings from the Bank of England and others of a possible house-price bubble,’ he said.”

“Many mainstream economists argue that Dublin is not experiencing a house price bubble at present. They are wrong, just like they were wrong last time. Yesterday’s CSO data appears to show that the cost of buying a house has risen by a bubble-like 24pc in the capital over the past 12 months. The reality is there are already enough houses in the capital to put a roof over the heads of everybody currently looking for a home. It is only a matter of time before people begin selling in big numbers. The trend has already begun at the top end of the Dublin market. It will trickle down. It always does.”

“Rising prices are seductive for anybody who either owns a house outright or anybody in or close to negative equity. Most people probably want prices to keep rising for years against their better judgement. History and common sense tell us they won’t.”

“As the price of houses goes up and up, so the debate goes on: does Australia have a house price bubble? Only 20 years ago, household debt stood at about 60 per cent of income. Now, it’s 177 per cent, the highest it’s ever been. The damage is done. For proof, look at the Reserve Bank’s study, released last week, suggesting Australians would be financially better off renting rather than buying.”

“It could just be that this level of debt across the community has simply made a lot of Australians cranky and impatient, even if they do see the value of their homes galloping ahead week after week. Ten years ago, John Howard secured a stunning election win by asking voters ‘who do you trust to keep interest rates low?,’ Interest rates right now are even lower but many of us are so deep in debt we’re reluctant to trust anyone.”

“Given a second trial in Charlotte, former Beazer executive Michael Rand heard the same verdict: guilty. A federal court jury convicted Rand of securities fraud and other charges stemming from what prosecutors describe as a seven-year accounting conspiracy at the Atlanta-based construction giant. Rand was charged with manipulating earning reports to mislead investors and regulators, then lying about it to federal investigators and company auditors.”

“He also was accused of trying to block a federal probe into his company’s illegal home-mortgage practices that led to hundreds of Charlotte-area foreclosures. Rand and Beazer’s former chief accounting officer, faces a maximum penalty of 85 years in prison and a $1.25 million fine. Sentencing will occur at a later date.”

“The federal investigation that led to Rand’s indictment began in 2007. It followed a series of Observer stories focusing on Beazer practices that broke federal lending laws and put hundreds of Charlotte-area residents into homes they couldn’t afford. While the homebuilder amassed $389 million in profits in 2006, more than 13 percent of its Mecklenburg houses resulted in foreclosures, leaving behind wrecked families and ravished neighborhoods.”

“Despite the damage, Rand is one of only two Beazer figures who have faced charges. Janette Parker, the manager of Beazer’s mortgage office in Charlotte, pleaded guilty to three counts of mortgage fraud in 2011.”

Bits Bucket for July 27, 2014

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